Free Markets, Free People


Straight Talk on Health Care

We need to face a few facts about health care reform.  Our current system of health care funding is broken.  It’s not broken because we have a free market in health care. It’s broken because we don’t.

Spending in the US health care system is essentially out of control.  The US spends almost 16% of GDP on health care.  Canada, our nearest neighbor, spends a bit more than 10%.  In western Europe, the figure is generally between 7% and 9% of GDP.  It’s something I addressed in my book a few years ago:

Why is spending so much higher in the US, with its supposedly free-market system?  Why is it, with all that spending, that regular medical coverage doesn’t exist for 40 million Americans, when, in the rest of the industrialized world, there is 100% health coverage?

Something is deeply wrong with the financing of the US health-care system.

Part of the problem is that we really don’t have a free market in health care. Individuals, by and large, don’t buy health care policies. Health insurance is employer-provided. In effect, however, this is underwritten by the US government by making health care premiums deductible for businesses, which results in billions of dollars in lost tax revenues. And then, of course, you have to throw in the $300 billion or so that the state and federal governments spend outright to provide health care.  And, of course, once you hit 65, you’re on the government’s health care gravy train, because you’ve got your Medicare, which also covers prescription drugs, now.

Why do we spend too much for health care in the US? The Heartland Institute, a public policy think-tank, has listed several reasons:

1) Government subsidies to health care increases demand by artificially lowering costs.

2) Favorable tax treatment of employer-provided health care has the same effect.

3) Lower-income people without health care must rely on emergency room health care delivery at substantially higher cost.

4) Health care buyers and sellers meet in a “market” that is heavily regulated by the government.

5) State governments increase health care costs by mandating benefit coverages.

6) State governments artificially reduce the supply of health care by requiring Certificates of Need before health care providers can expand services.

7) States interfere with the creation and operation of PPOs by fixing prices or the range of services they can offer.

So, really, we have what is, in many ways, the worst of both worlds. We have a market-based system, but one in which market incentives are minimized through regulation and subsidies. In effect, government policy bids up health care prices, while at the same time interfering with the market forces that keep a lid on prices.

It’s no wonder that more and more people are looking at single-payer, government-provided health care as an alternative to what we already have. At the very least, a single payer system would end the inefficient and fragmented ways by which health care is currently purchased.

This is not a situation we can afford to ignore for long.

We have ignored it, though–although that appears to have come to a screeching halt.

Because of various government intereferences, more than 1/3 of all health care spending is purely administrative.  By contrast, Canada’s administrative burden on health care funding is about 1%.  If we were to switch over to a single payer system, there is an excellent chance that we would, in fact, spend less money on health care than we currently do.

Are there horror stories about health care in Canada or the UK?  Sure.  There are horror stories about our system, too.  For instance, you can find stories of families that were denied coverage, and were forced in to financial disaster all the time.

Canada, of course, has the rather unique problem of being a country with 1/10 of our population being spread over an equal amount of real estate.  In that situation, if you don’t live near a major metropolitan center–and Canada only has about 10 of them, there’s a shortage of available services.  In Britain, there are terrible NHS hospitals, but there are also excellent ones.  But the same it true in the US.  If you live in, say, Houston, Ben Taub Hospital probably wouldn’t be your first choice for treatment.  M.D. Anderson, however, would.

The bottom line, however, is that a single payer system would, in fact, deliver an equal or better level of health care as we currently receive, and probably do so at a lower cost.

But there is a fundamental problem with our current debate.  We are arguing over whether we should keep the system we have, or move to a system that sets us on the path to a single-payer system.  But those aren’t the only alternatives. There is another option that is being lost in this debate.  The democrats don’t want to mention it for ideological reasons.  The Republicans don’t mention it because of…well…incompetent buffoonery, I guess.

The alternative, of course, is to make the case that our current system costs so much, and is so distorted, because of government interference.  We have a mixed system of health care funding in which the government’s intervention imposes a  wide range of unnecessary costs.  So our choice is not to keep what we have, or eliminate the administrative overhead by turning it all over to the government.  The third choice is to return to a free market in health care.

Eliminate state by state coverage mandates, which result in 50 different–and sometimes wildly so–regulatory regimes.  Eliminate federal and state laws that prevent insurers from creating nationwide plans and risk pools.  Eliminate employer health-care coverage, and personalize it, to make it personal and portable.

Here’s another idea:  allow people to buy health insurance.  That isn’t what we have now.  We have pre-paid health care.  The two things are wildly different.  For example, look at how auto insurance works.  Imagine how much your car insurance would cost if we expected our insurance to cover 80% of the cost of oil changes, tire rotation, wiper blades, new tires, regular service, etc.  But that’s precisely what we expect medical insurance to do.  And then we wonder why it costs so darn much.

We need to allow insurers to offer simple catastrophic care coverage, with varying deductibles.  That way, you can pick up the tab for your own doctor’s visits, but you don’t have to worry about bankrupting yourself if some idiot runs a stop sign and knocks you off of your motorcycle.  We need to allow anyone who wants to set up a medical savings account.  Heck, if we really want “the government” to finance it, we could offer a 100% tax credit for health care expenditures.

We don’t need the government to rescue us from the unsatisfactory state health care is in.  We can accomplish the same goals of universal coverage and lower cost, by getting the government out of health care as completely as possible.  There are so many ways we could use free markets to relieve us of the distress the current system of funding is in, that they’re almost impossible to enumerate.

And best of all, doing so would comport with the country’s traditions of freedom, and individual choice.

And one final thing.  With a real free market in health care, if there’s a problem, you’ll also get accountability.  You’ll get access to courts where you can sue a private insurer who defrauds you, or someone who gives you substandard care.  What you’ll get with a single-payer system is no recourse.  If the government turns down your procedure, or you don’t get the health care you should, or if you keel over before your slot on the waiting list comes up, there’ll be nowhere to go, and no one accountable, any more than there is now if the public schools fail to adequately educate your children.

But free market reform doesn’t even seem to be on the table.

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32 Responses to Straight Talk on Health Care

  • What about litigation?  To what extent does it drive up US healthcare cost?
    Also, what about the US essentially subsidizing the rest of the world when it comes to drugs; surely that, too, is a factor?

  • What should be discussed – and, if we had a responsible crew in charge of Washington – is how some small reforms could be used to fix the system, make it work better, and hopefully improve things for people. And, at the same time, perhaps get some insurance for people who currently have none (and, no, I am not speaking about “47 million people” – I am talking about several million who need assistance, illegal aliens and others being excluded).

    If The Clown™ were truly serious about fixing things, he would have pushed for small reforms that truly fixed the system. Instead, he decided that with overwhelming majorities in the House and Senate, he would push for his and the Left’s wet dream and institute something along the lines of a “single payer” system. Of course, that would not fly, so instead he wanted to settle for a “public option” that was little more than window dressing on the NHS system in the UK. Why? Because in his heart of hearts, The Clown™ is a true-blue Socialist, who believes that a UK-like system should be done here, his protestations aside.

    What small reforms, you ask? First, mandate that insurance companies cannot throw people off their plans if they get sick or injured. Further, people with prior conditions must be allowed to purchase insurance. Government could have stepped in and offered tax breaks or other incentives to further this along. No government option, no panels or rationed care, no waiting lines or “killing grandma.” Follow that up with – gasp! – tort reform (to throw a bone to the doctors for their support of reform), which would show that The Clown™ challenged his own side rather than planting a large kissy on their arses, and you would have the makings of a bipartisan agreement which could be ironed out in the committees and in a conference.

    But, no! Instead, The Clown™ decided that this was the time to throw the baby out with the bath water and “start a new system.” How shocked must he and his dimwitted supporters be when they see massive resistance – from independents and from the right – to anything he wants to do now. Losing this fight has two-fold implications for The Clown™: 1, he loses in a Congress run exclusively by his own party. No matter how many times he wants to blame Republicans, people realize that the GOP has no power to stop anything on Capitol Hill… and, 2) his job approval ratings (JARs) have plummeted; the more he speaks on the issue, the less people believe him. The more he appears on television, the further his JARs fall. Now they are at 47% positive; it took Bush five+ years to get to that point.

    The problem with major league baseball a few years ago was rampant drug abuse. Imagine if trying to fix it meant blowing up all the teams and instituting a brand new league of players and teams. That wouldn’t fly, would it? To stop the steroid use, testing is mandated. A small reform to fix a problem…which, if The Clown™ had tried here, would have been done already, he could have signed it, and looked like a hero to boot. Instead, now, he will lose everything and look more and more like the Chump that he is rapidly becoming.

    • Coverage of preexisting conditions is not insurance, it is a straight out subsidy. Insurance premiums are based on the probability of an event, which is why they are usually lower than the cost of the actual event. That is why, for example, flood insurance is more expensive in a flood plain than in the desert. It is also why life insurance doesn’t cover participating in wars or suicide. If you want someone else to pay for your current medical problem(s), don’t call it insurance, call it what it is; welfare or subsidy.

  • “Canada, of course, has the rather unique problem of being a country with 1/10 of our population being spread over an equal amount of real estate.  In that situation, if you don’t live near a major metropilitan center–and Canada only has about 10 of them, there’s a shortage of available services.  In Britain, there are terrible NHS hospitals, but there are also excellent ones.  But the same it true in the US.  If you live in, say, Houston, Ben Taub Hospital probably wouldn’t be your first choice for treatment.  M.D. Anderson, however, would.”

    Wow.  This is misleading.  Despite Canada being large, 80% Canadians live within the 130 miles of the Southern border of the country.   They also live in concentrated metropolitan areas.  But because of more rigid incorporation rules, cities don’t grow and absorb the surrounding communities as easily.  For example, the city I grew up near a  city of 200,000 which doesn’t make the top ten  list but the metropolitan area approaches 1 million.  About half the province of Ontario lives in the greater Toronto metropolitan area which I define as when the cookie cutter suburbs stop and the corn begins.
    The vast majority of Canadians live in population densities similar to the US.  A very small percentage of the population lives in the vast expanse and they tend to be highly subsidized communities.

    But there is some truth to care being more available in the major cities.  It isn’t that there isn’t the population outside the major center to justify them.  Its  that there’s more political gain to put medical facilities in the city centers.  In a US single payer, I’d imagine there would be a government ribbon cutting in New York or LA for a hospital or medical center every other week.  The rest of the country be damned.

  • “3) Lower-income people without health care must rely on emergency room health care delivery at substantially higher cost.”

    Lower income people or illegal aliens?  My guess if we didn’t permit the bulk of illegal immigration, this problem would be much less.

  • “Because of various government intereferences, more than 1/3 of all health care spending is purely administrative.  By contrast, Canada’s administrative burden on health care funding is about 1%.  If we were to switch over to a single payer system, there is an excellent chance that we would, in fact, spend less money on health care than we currently do.”

    Does this include Ministry of Health administrative costs or just hospital adminstrative costs?   When I signed up for OHIP it was like going to the DMV on steroids.  And we’re also trusting the government to grade itself for these statistics.

    How much of the US administration cost is tracking for legal reasons and government compliance especially for those who are being covered by the government.   And no one who likes to defend the Canadian system seems to like to point out legal awards for malpractice are few and meager.

    I could go on, but I actually have to go to work to get that tax free insurance which is more of  envy problem and potentially unfair admittedly than a negative impact on the industry, imho.

  • I would argue that right now we live in a socialist state — but it’s a corporate socialism where companies dominate politics. I agree that a single payer system run by the federal government would have its own problems, and may not solve the current crisis, which is getting worse at an unbelievably rapid pace. But what I think a lot of people on the “right” don’t get is that they’ve embraced a corporate socialism already. Your post at least shows recognition of that problem, and I would hope that a neo-libertarian approach would be as hard on the corporate socialism of the right, as it is on the governmental socialism of the left. That would be a worthwhile alternative perspective to consider. (My own blog today, August 14, is about this corporate socialism, reacting to a superb talk I went to last night by Chris Hedges).

    • You know very well that the QandO posters are and have been against the government subsidizing the business community.
      But that’s not the issue right now, is it?
      But like a good Leftist who wants to hide his real ideology, you shout, “Hey! Look over there! That part of the economy benefits from socialism so don’t deny me even more socialism!”
      If you really were against socialist policies, you wouldn’t advocate for more while complaining about it.
      Idiot.

    • By the way, Chris Hedges is proud of his socialism:

      We will either find our way out of this mess by embracing an uncompromising democratic socialism—one that will insist on massive government relief and work programs, the nationalization of electricity and gas companies, a universal, not-for-profit government health care program, the outlawing of hedge funds, a radical reduction of our bloated military budget and an end to imperial wars—or we will continue to be fleeced and impoverished by our bankrupt elite and shackled and chained by our surveillance state.

      No wonder Erb loves him.

  • Excellent point that recourse is an unrecognized benefit of free markets.

    Another equally important point is that free markets reveal the cost of risk. No need for government to “fight” smoking, obesity, or drinking. Let the market clearing premiums make bad behavior pay.

    (The converse, severing the link between financing and delivery, drives both over-consumption and bad behavior.)

  • I would contend that corporations, with their group purchasing power and distance from the emotion attached to the risk of illness to oneself and one’s family members, would exert greater market forces on insurance companies than a sea of individuals.

    Addressing the purchase of insurance also does not address the issue that the abuse comes at the time of the point of use than at the time of purchase of insurance. Therefore there is no focused disincentive for insurance abusers.

    The point to restructure how items are covered is a good one. I believe malaysia has coverage above some moderate number like $2-4000. So it covers the catestrophic medical care but leaves the day to day to the free market.

  • Your point about auto insurance can be taken a step further.  Like pretty much any other economic good, the price of cars has consistently increased over the last 10 years.  But the price of car insurance hasn’t kept pace with the same rate of inflation.  The reason?  A true free market exists.  Unlike health insurance, I can shop from a wide array of providers to find the plan that suits me at a price I can afford.
    Why on earth can’t health insurance be treated the same way?  If people were allowed to actually shop for providers that they want, rather than be forced to take whatever their employer offers them (i.e. Insurer X vs. nothing), I think a lot of this debate would be settled.










     

  • How much Americans pay vis a vis other countries is to my mind irrelevant. What we should focus on is competition and deregulation of the medical industry, and on unlocking the grip of Medicare. The goal should be to back government out of the health care industry. The prices and the percentage of GDP will take care of themselves.

    I caution against the phrase “health care system.” The medical industry has been forced to take into account a government system of regulation, but the industry itself is not a system, nor should it be. It is an industry with individual firms — hospitals, doctors, insurers, clinics, drug companies, etc. — that should be allowed much greater flexibility. A “system” implies something that can in fact be subjected to central planning and control, and central planning and control is the deadest of dead ends.

    Government bureaucracy and regulation always takes on a life of its own. It is parasitic in its initial, middle and final phases. Legislators have forgotten how to pass real laws, so they create administrative bureaucracies to make regulations and then make decisions about the regulations and then to tie the hands of competition, which inevitably destroys the normal pricing mechanics of any industry, not just health care. It will turn out, as it must, like FDR’s whimsical daily decisions about the price of gold in the 1930s.

  • Dale Franks – “The bottom line, however, is that a single payer system would, in fact, deliver an equal or better level of health care as we currently receive, and probably do so at a lower cost.”

    This statement points toward some significant problems with the debate, most importantly confusion about what sort of “health care” we want.

    I would say that the vast majority of people can have their needs met by a relatively inexpensive, ’50s-vintage system. They need the occasional bone set, cut stitched up, antibiotics to treat a minor infection, child birth, etc; things that can USUALLY be handled by a single, relatively short visit to the doctor or hospital. To that extent, a single-payer system probably COULD provide cheaper care than the present “system”*, though I doubt it would be “better”.

    The problem is that there is a significant fraction of our population that needs complex, extensive care. Most of these people are elderly, but there are also people with chronic diseases (such as cancers) or extensive injuries who can’t be treated by a quick visit to the hospital or a bottle of pills. Single payer systems, because they emphasize cost control, is LOUSY for people like this. Indeed, there is absolutely no incentive for such a system to develop ANY treatments, procedures or drugs that extend life beyond a certain “useful” age because a cost-benefit analysis points toward saving money by letting people die (or, at least, learn to live with pain and disability) unless there is some reasonable expectation that treatment will return them to the “productive citizen” category. The ghoulish Dr. Ezekiel Emmanuel, one of TAO’s chief “health care” advisors, has stated this pretty bluntly:

    “… services provided to individuals who are irreversibly prevented from being or becoming participating citizens are not basic and should not be guaranteed. An obvious example is not guaranteeing health services to patients with dementia.”**

    One can argue that insurance companies have the same sort of financial motive to avoid paying for expensive care. This is undoubtedly true, and it is the reason that insurance companies will often refuse to cover pre-existing conditions or “drop” customers who develop diseases that are expensive to treat. However, because health insurance companies have to compete for customers (which, obviously, a single payer system doesn’t have to do), they also have the impetus to agree to pay for those conditions, though they will certainly charge the highest premiums that the market will bear. They also have to deal with the potential of lost profits if their “brand” becomes odious in the marketplace because they are perceived as too heartless. Faceless government bureaucrats haven’t got to worry about this sort of thing.

    So, how would a single-payer system have lower costs? Obviously, by providing lower (or no) service to large segments of the population who get service today, though at a high cost.

    I agree that getting Uncle Sugar out of the health care racket (which, not that it matters, is not an enumerated power in the first place) is the best way to “reform” the system.

    —-

    (*) I agree with Martin McPhillips: we don’t have a health care “system”, but rather a witches brew of competing and even conflicting systems.

    (**) http://www.nypost.com/seven/07242009/postopinion/opedcolumnists/deadly_doctors_180941.htm?page=0

  • “I agree with Martin McPhillips: we don’t have a health care “system”, but rather a witches brew of competing and even conflicting systems.”

    No, what I’m saying is that like any other industry (not a “system,” we don’t have a household appliance “system,” for instance), the medical industry is composed of individual firms — doctors, hospitals, insurers, pharmacies, drug companies, etc.

    What Obama and the Democrats are trying to do is in fact turn that into a government controlled system, which is the very last thing any clear understanding of economic history would have us want.

    We already have a system of government intervention and regulation that individual firms in the medical industry must take into account. That, in fact, is the primary cause for the high cost of insurance.

    The debate has to be shifted away from “reform the system,” which will only make things worse, to de-systemization, meaning get the government and its bureaucratic tentacles back out of and away from the medical industry.

    This, of course, is daunting in the extreme, because of what we know about prying the cold fingers of government off of its bureaucratic batons and tasers.

    But I heard one guy at a town hall meeting saying to Specter: “Just leave us alone.”

    That has some resonance to it. “Don’t Tread On Me” works too.

  • When you look at average lifespan, the US faires poorly, but when you account for homicide and auto accident deaths, the US has the longest lifspan. And I’m sure there are other factors that, if accounted for, would increase the US edge.

    Likewise, these factors contribute to healthcare costs. If you account for the higher American crime/assault rates (more shootings, stabbings, bludgening, etc) and auto accident injury rate, how does US and Canadian costs compare?

    Also, some 100k Canadians come to the US for healthcare, yet still pay into their system via taxes. Doesn’t that mean they are adding to the US “cost” while being counted as part of the Canadian “population”.

    What I’m hitting at is that there are factors that make the US system look more expensive than it is, relative to nations like Canada. I’d like to see those costs factored out, just as we have seen it done with respect to average life span.

  • “Spending in the US health care system is essentially out of control. The US spends almost 16% of GDP on health care.”

    First of all, much of that is not the US spending, but private individuals spending. If that is the case, who cares? It is only when the government steps in does it become a national issue, at least for those of us who pay taxes and for those that consume.

    If private individuals want to spend money on health care or anything else that makes their lives better or more comfortable, that is not an example of “out of control” but an example of how (i) we have more money to worry about these things, and (ii) how other costs have decreased relative to income.

    In addition, look at elective medical procedures such as laser eye surgery and plastic surgery. Innovation booms and prices fall. This is what happens to medical costs when the government stays out of it.

    And Don, in addition to the factors you mentioned, the treatment of premature babies as live births vs. stillborn births also greatly skews the average lifespan in the US vs. Europe. Leaving the moral issues aside, control for that factor and the lifespans even out.

    • I understand the baby argument and how it fits in with lifespan, you are correct it is another factor. My point is that these factors play into cost, as well.

      Canada intrinsically has lower health costs, due to behaviour. We will suffer if Obamacare rations us to Canadian cost levels, worse than Canadians currently suffer. And they already have waiting lists and poorer quality.

  • I like your plan, though I would disagree with some of your assumptions. I would like to propose an alternative that might be more politically palatable; How about we let the government provide universal insurance, in the sense that you used – a very high deductible policy that covers everything over, say $5000 per person (pegged to something reasonable stable of course). Then get the government deregulate the remaining market. Other than determining what constitutes a deductible ‘medical’ expenditure, the government leaves everyone alone. Let private insurers offer gap policies. Remove the tax incentives on all private insurance. Let providers set prices wherever they want.
    That only leaves the poor with a real issue, so offer vouchers for gap insurance, and let people use food stamps for health care (with a modest increase in real value).

  • First rule of thumb for real reform: add nothing, no requirements, no regulations, no mandates, no nothing.

    Only take those things away: subract requirements, remove regulations and mandates.

    Addition by subtraction.

    Open the markets.

    Back the government out of the medical industry.

  • Health care will cost more, period. Name a system or country where health care costs are not increasing. And why shouldn’t they? As the quantity of health care services used increases, due to population growth if nothing else, the cost (NOT price, there is a difference) obviously must increase.

  • But free market reform doesn’t even seem to be on the table.

    Here’s an idea.  People should go to one of these townhall meetings and yell at the Republican members of Congress for not putting one on the table.
    Sure, they’re in the minority and it wouldn’t see the light of day, but at least they could say they put up a counterproposal.

    It’s worth a shot, right?

    Cheers.

    • Works for me – and I like the avatar!

      Cheers.

    • What needs to be done now is the defeat of Obamacare. Yelling at Republicans for not having a plan can happen later.

      Actually, I think it is more likely we will be yelling at some Republicans for supporting whatever atrocity the Democrats end up passing. With that in mind, we should be yelling at any weak knee RINOs to vote NO.

  • :)

    Yeah, all of the old Guinness advertising artwork is pretty cool.
    I’ve got a couple of them on my wall.

    Cheers.

  • Good take on all of this, and written in a manner anyone *should* be able to understand.
    Yes, I agree with your suggested solution – to get the gov’t completely out of it.
    The appalling thing is that inspite of the overwhelming evidence of across the board gov’t inefficiency and ineptness there are still a massive amount of people running around that *believe* gov’t is the solution to just about everything.
    Your analogy to 80% and car insurance is spot on and should be used everywhere to shine some light on darkened brains.

     

  • My first time to this site and all I can say is… WOW! A logical discussion! Are you guys from a different planet?
    I’ll be back  :-)

  • Straight talk is meaningless when the President is hell bent”to bamboozle you, to hoodwink you” with the best “bait-n-switch” in US history.

  • No, I’m from the USA, born and raised in Europe. This new pres. is a trainwreck. Seriously!!! :-(

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